[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 3554 Introduced in Senate (IS)]

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118th CONGRESS
  1st Session
                                S. 3554

 To amend the Financial Stability Act of 2010 to provide the Financial 
     Stability Oversight Council with duties regarding artificial 
     intelligence in the financial sector, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           December 18, 2023

Mr. Warner (for himself and Mr. Kennedy) introduced the following bill; 
which was read twice and referred to the Committee on Banking, Housing, 
                           and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
 To amend the Financial Stability Act of 2010 to provide the Financial 
     Stability Oversight Council with duties regarding artificial 
     intelligence in the financial sector, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Financial Artificial Intelligence 
Risk Reduction Act'' or the ``FAIRR Act''.

SEC. 2. DEFINITIONS.

    In this Act, the term ``artificial intelligence'' has the meaning 
given the term in section 5002 of the National Artificial Intelligence 
Initiative Act of 2020 (15 U.S.C. 9401).

SEC. 3. SPECIAL PROVISIONS REGARDING ARTIFICIAL INTELLIGENCE IN THE 
              FINANCIAL SECTOR.

    (a) In General.--Subtitle A of the Financial Stability Act of 2010 
(12 U.S.C. 5321 et seq.) is amended by adding at the end the following:

``SEC. 126. SPECIAL PROVISIONS REGARDING ARTIFICIAL INTELLIGENCE IN THE 
              FINANCIAL SECTOR.

    ``(a) Coordination, Report, and Recommendations.--The Council shall 
coordinate with member agencies with regard to potential risks to the 
stability of the financial system posed by artificial intelligence, 
including--
            ``(1) direct the Office of Financial Research, as 
        appropriate, to conduct research into the uses of artificial 
        intelligence by financial institutions and entities providing 
        services to or performing functions on behalf of financial 
        institutions;
            ``(2) identify threats to the stability of the financial 
        system posed by the use of artificial intelligence tools and 
        technologies, such as--
                    ``(A) the generation and use of false 
                representations of events or the likeness, speech, or 
                actions of persons by malign actors to manipulate 
                financial markets, institutions, or instruments, or to 
                cause disruption in financial markets and;
                    ``(B) any other acts or practices associated with 
                the use or assistance of artificial intelligence tools 
                or technologies that threaten the stability of the 
                financial system;
            ``(3) not later than 180 days after the date of enactment 
        of this section, in consultation with the member agencies, 
        financial institutions, securities market participants, and 
        entities providing services to or performing functions on 
        behalf of financial institutions or securities markets 
        participants, submit to the Committee on Banking, Housing, and 
        Urban Affairs of the Senate and the Committee on Financial 
        Services of the House of Representatives a report that--
                    ``(A) identifies the threats described in paragraph 
                (2);
                    ``(B) identifies specific gaps in the existing 
                regulations, guidance, and examination standards of the 
                member agencies that prevent effective and 
                comprehensive responses by each of the member agencies 
                to the threats described in paragraph (2); and
                    ``(C) makes specific recommendations for addressing 
                the gaps identified in subparagraph (B), including, as 
                appropriate, recommendations regarding implementation 
                of the recommendations in the Cybersecurity Information 
                Sheet published by the National Security Agency, 
                Federal Bureau of Investigation, and Cybersecurity and 
                Infrastructure Security Agency on September 12, 2023; 
                and
            ``(4) identify, as appropriate, opportunities for the use 
        of artificial intelligence technologies in financial regulation 
        and supervision, specifying that any use of artificial 
        intelligence by the agencies in regulation and supervision 
        should be transparent and disclosed to their regulated entities 
        as appropriate.
    ``(b) Congressional Review.--Not later than 30 days after the date 
on which the relevant congressional committees receive the report 
required under subsection (a), the committees shall review the report 
and submit comments and recommendations thereon.
    ``(c) Implementation of Council Recommendations.--
            ``(1) In general.--Upon review of comments and 
        recommendations under subsection (b), the Council shall 
        commence action under the procedures prescribed in section 120 
        with regard to implementation of the recommendations by each of 
        the member agencies.
    ``(d) Congressional Review Act.--The provisions of chapter 8 of 
title 5, United States Code, shall apply as appropriate to rules issued 
by the member agencies under this section.
    ``(e) Scenario-Based Exercises.--The Federal and Banking 
Information Infrastructure Committee sponsored by the President's 
Working Group on Financial Markets shall, in consultation with private-
sector entities and other relevant governmental entities--
            ``(1) initiate a series of scenario-based exercises to test 
        the effectiveness of defenses against financial market 
        disruptions associated with the use or assistance of artificial 
        intelligence technologies; and
            ``(2) make recommendations for ongoing improvements in 
        detection, prevention, and mitigation of such disruptions.''.
    (b) Technical and Conforming Amendment.--The table of sections for 
the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 
U.S.C. 5301) is amended by inserting after the item relating to section 
125 the following:

``126. Special provisions regarding artificial intelligence in the 
                            financial sector.''.

SEC. 4. ENHANCED AUTHORITY TO OVERSEE THIRD-PARTY PROVIDERS OF 
              ARTIFICIAL INTELLIGENCE AND OTHER SERVICES TO FINANCIAL 
              INSTITUTIONS.

    Section 206A of the Federal Credit Union Act (12 U.S.C. 1786a) is 
amended--
            (1) in subsection (a)(1), by striking ``that'' and 
        inserting ``an'';
            (2) in subsection (c)(2), in the matter preceding 
        subparagraph (A), by inserting ``, in a manner and method 
        prescribed by the Board,'' after ``Board'' ; and
            (3) by striking subsection (f).

SEC. 5. REGULATION OF SERVICE PROVIDERS BY THE FEDERAL HOUSING FINANCE 
              AGENCY.

    Subpart A of part 2 of subtitle A of the Federal Housing 
Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4541 
et seq.) is amended by adding at the end the following:

``SEC. 1329. REGULATION AND EXAMINATION OF CERTAIN SERVICE PROVIDERS.

    ``Whenever a regulated entity or the Office of Finance causes to be 
performed for itself, by contract or otherwise, any activity that is 
permissible for the regulated entity or the Office of Finance, whether 
on or off its premises--
            ``(1) such performance shall be subject to regulation and 
        examination by the Director to the same extent as if such 
        activity were being performed by such entity or Office itself 
        on its own premises; and
            ``(2) the regulated entity or Office of Finance shall 
        notify the Director of the existence of the service 
        relationship not later than 30 days after the earlier of--
                    ``(A) making of such service contract; or
                    ``(B) the performance of the activity by the 
                service provider.''.

SEC. 6. TREBLE PENALTIES.

    Section 21(d)(3) of the Securities Exchange Act of 1934 (15 U.S.C. 
78u(d)(3)) is amended by adding at the end the following:
            ``(E) Amount of penalty for violation involving machine-
        manipulated media.--The amount of a civil penalty imposed under 
        subparagraph (A)(i) for a violation involving the use of 
        machine-manipulated media, as defined in section 5724 of the 
        Damon Paul Nelson and Matthew Young Pollard Intelligence 
        Authorization Act for Fiscal Years 2018, 2019, and 2020 (50 
        U.S.C. 3024 note), shall not exceed 3 times the penalty 
        otherwise determined under clause (i), (ii), or (iii) of 
        subparagraph (B).''.

SEC. 7. LIABILITY.

    The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is 
amended by adding at the end the following:

``SEC. 42. LIABILITY.

    ``(a) Liability.--Any person who, directly or indirectly, deploys 
or causes to be deployed, an artificial intelligence model shall be 
deemed to satisfy the scienter, other state of mind, or negligence 
requirements of the Federal securities laws with regard to any and all 
acts, practices or conduct engaged in by such model, and any outcome 
resulting from the use of such model, and shall be liable to the same 
extent as if such person had committed such acts, practices or conduct 
directly, unless such person took reasonable steps to prevent such 
acts, practices, conduct and outcome, which may include but are not 
limited to establishing, maintaining and enforcing written policies and 
procedures reasonably designed to prevent violations of the Federal 
securities laws.
    ``(b) Waivers.--Civil liability of a developer of an artificial 
intelligence model for design defects or breaches of implied warranties 
with respect to such a model out of which arise a violation of the 
Federal securities laws may not be waived.''.
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